China’s Coffee Market Competition: Financial Results for Luckin Coffee

I was truly surprised after reviewing the 2023 financial results for Luckin Coffee. 

The company did far better than I expected given the intensely competitive and price-sensitive coffee market in China. The company generated profits of $426 Million on revenues of $3.5 Billion. Not too bad considering the price war in the market with Cotti Coffee and others. While I recognize that many of the stores are extremely small and in B or C locations, it is still an incredible feat to open 8,000 new outlets in the country in one year. Starbucks of course holds the premium positioning in the market and charges more than double compared to Luckin.

However, I wonder if they can continue this strategy with the explosion of delivery and takeout considering their premium pricing is driven by their seat rental lounge experience. Can China possibly begin to look like Italy going forward? Drink an espresso standing up and pay 1 Euro but having the same espresso sitting down will cost up to 3 Euros. Time will tell!!

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